With a move by the Central Board of Direct Taxes (CBDT) to expand the government’s tax base, 10 percent TDS on freebies and business promotions might have a significant impact on most of the influencers. But, it might have little effect on categories like finance influencers because they don't usually get freebies or merchandise. That’s because most of their ads are based on services instead of product promotions.
So who will it impact the most?
The categories of influencers which would be most affected are lifestyle, fashion, tech (electronics) and travel.
For example, if a company sponsors a trip of a travel influencer for Rs 1 lakh, then the company will be liable to deduct Rs 10,000 as TDS. Same goes with the goodies provided to lifestyle and fashion influencers. Even the tech influencers often get freebies worth above Rs 20,000, which is the non tax limit.
But it has also been notified by the CBDT that no charges will be applied if the gifts are returned to the company after the purpose of sales promotion has been fulfilled.
What are companies likely to do now?
So my best guess is, with promotion of durable goods like phones, cameras, or laptops which are above Rs 20,000, the companies might just skip the gifting system and rather rent out for free for the required duration to the content creators.
Coming to non-durable or perishable goods, like let’s say promotion of a bakery where they send you cakes or cookies, they anyway barely cross Rs 20,000.
Talking about finance influencers, they usually do not receive free tickets on IPL matches or trips for sales promotions for that matter. Also, usually the promotions finfluencers do are taxed. Freebies are a rare thing in their niche. Hence, with or without this new development, anyway they are liable for 1 to 10 percent TDS. So, I do not see a significant impact on social media niches which are information+entertainment centric.
And the bottom line?
All in all, we might see a drop in freebies above Rs 20,000 - where companies either collect the goodies after promotion is shot, or companies actually pay the TDS for high cost travel sponsorships or events!